Bitcoin Price Analysis: Tim Draper Wins Silk Road Auction

Coindesk is reporting that Tim Draper, venture capitalist, “father” VC Adam Draper, and managing director of VC firm, Draper Fisher Jurvetson, is the winner of all 30 thousand bitcoins that were up for grabs in the Silk Road Bitcoin auction. This announcement took place in a Medium blog post by a Californian Bitcoin trading and storage company, Vaurum. Coindesk noted that Draper was named as an investor in the company’s $4 million seed funding round in May.

Vaurum CEO, Avish Bhama, also announced in the blog post that Tim Draper plans to partner with Vaurum and use the bitcoins he won in the auction to help get Bitcoin into emerging markets with weak currencies.

From Tim Draper:

“With the help of Vaurum and this newly purchased bitcoin, we expect to be able to create new services that can provide liquidity and confidence to markets that have been hamstrung by weak currencies.”

This plan to inject bitcoin liquidity into emerging markets with weak currencies goes along well with Bitcoin’s potential to make the global remittance market much more efficient and less expensive. While this will not be an act of charity, like remittances often are, this could help workers in these developing countries lift themselves out of poverty. Since they would not have to deal with currencies that posses very low purchasing power, and instead could use a currency that has been progressively appreciating in value, they would not have as hard of a time becoming prosperous in these emerging markets, where individuals often struggle financially.

A direct injection of bitcoin into emerging market economies will be a positive side-effect of Draper and Vaurum’s project, but that injection would also make it easier for wealthy corporations to invest in these emerging markets. Such investment by well established corporations would immediately increase the amount of jobs available in the emerging markets and would help lift individuals out of poverty. So, this liquidity project Vaurum and Tim Draper will be working on with Draper’s auction winnings will definitely help shore up markets with depreciated currencies, or it could jump-start a process where those depreciated currencies are replaced by Bitcoin altogether.

What does this Announcement mean for the Bitcoin Price?

The Silk Road auction itself has had a substantial impact on the Bitcoin price, as well as the announcement that one person had won all of the bitcoins in the auction. Adhering to the prediction I made in a previous analysis, the price experienced a slight downward divergence from the $580-$590 sideways trend and fell into the $560s due to panic selling in the run-up to the auction. Then, on the day of the auction, the price pulled upwards again and broke $600, contrary to the prediction put forth by Citi Group. After auction losers began making public announcements, disclosing their bids– which were all below the market price, indicating that the winner likely bid at or above the market price– the Bitcoin price starting moving upwards once more. On Tuesday, July 1st, the US Marshals announced that one person had won all 30 thousand of the Bitcoins; the market reacted to this news by pushing the Bitcoin price to $650, and even flirted with $660. On the night of July 1st the Bitcoin price dropped and hovered around $640, likely because of the immediate excitement of the auction wore off. Finally, this morning (July 2nd), Vaurum announced that Tim Draper was the winner of the Silk Road bitcoins and that he would be working with the company to inject bitcoin into emerging markets. The Bitcoin price then went back up to the $650 range, which I believe is a result of this announcement from Vaurum.

Where will the Bitcoin Price go from Here?

Now that the auction is over, the Bitcoin price is set return to its normal activities, being determined by day-to-day trading activities and daily news. While many trend “analysts,” who use positivist methodology and are only accurate when they get lucky, will look at the gains made in the price as a result of excitement from the auction and establish a new upward trend, which will likely be set to land on the moon. However, we cannot forget where the true trend lies, and how it was established. Before the US Marshals announced the auction of the Silk Road bitcoins, the Bitcoin price had been set on a gradual upward trend by a steady stream of positive news coming out of the Bitcoin community. The announcement of the Silk Road auction made for a temporary divergence from that trend, which went in both directions; the panic selling leading up to the auction drove the price down for a few days, then the excitement and good news during and after the auction pushed the price back up. But, as the excitement over the auction dies down, the Bitcoin price will be determined by the course of the trend that was established several weeks ago.

Bitcoin price from June 30-July 2

As the the market settles down, the Bitcoin price will find a new floor, which I believe will be somewhere between $600 and $650. So, it is possible that the price may go through a very slight decline while this new floor is being established. From there, the price will continue its steady upward trend. The continuance of this upward trend relies on all things being equal, of course. Anything could happen in the future that would break this established trend, and it is likely that such a thing will happen. Saying what that thing will be is impossible to do, however. The next divergence from this trend could be negative or positive, and could either be a temporary divergence or the establishment of an entirely new trend. All that can be said here with certainty is that, as long as the present conditions persist, the upward trend that was established weeks ago will continue. In conclusion, it’s possible that the Bitcoin price could return to the moon in the coming months, just maybe not as quickly or sharply as the positivist “analysts” will likely predict.